Furloughs are becoming increasingly viewed as a viable option for
controlling labor costs while retaining talent, a new survey by global
management consultancy Hay Group has found.

Among more than 100 US organizations polled in May, more than
one-third either has a furlough policy or is using furloughs as a way
to control costs. Within that group, half anticipate using furloughs to
cut costs for six to 12 months. And while furlough maximums vary from
four days to one year, more than half of those using them or who have a
furlough policy don’t have an established maximum length, the Hay Group
found.

Among those using furloughs or who have a furlough policy in place:

• About 75% of those on furlough are nonexempt employees; about 68%
are exempts or equivalent.

• 65% do not allow employees to volunteer for full- or
partial-length furloughs.

• 71% indicated compensation levels are being cut commensurate
with
time off; 52% indicated incentives would not be impacted due to reduced
annual pay.

• 75% indicated accrued, allotted vacation, or floater time
continues to be accrued during furloughs.

• More than 60% continue employees’ healthcare benefits during the
furlough period but are required to pay the employee’s contribution
portion.

• More than 60% indicated employer contributions to defined
contribution plans are continued based on reduced pay; nearly 10% said
the employer match is discontinued during furloughs.

• 80% are continuing employee 401(k) loans, as they would when
employees take leaves of absence.

• 30% of furloughs are intermittent, 27% are continuous, and 43%
are
“other.” One week, 60 days, or a short amount of days frequently
constituted “other.”

“They’re all struggling with it, honestly,” stated Marie Dufresne, a
senior consultant and national benefits practice leader for the Hay
Group. “They don’t want to terminate, they don’t want to layoff or
[institute a] leave of absence.”

Training mid-level managers is a critical component of using
furloughs, Dufresne explained.

Employers are implementing furloughs without due consideration of
all the legal risks. Accepting “off the clock” work from employees on
furlough, for example, could result in a class-action lawsuit against
the organization for violation of the Fair Labor Standards Act (FLSA).

“If you’re going to furlough half of your team for two weeks and the
other half the other two weeks, you’ve got to figure out what the rules
are,” Dufresne noted. “It’s got to be done at the manager’s level. This
is why we have to have constant education, guidelines, and policies.”

Furloughs are easier to manage when an entire city government shuts
down, such as when Chicago mandated a three-day furlough in August.
Police, fire, and tow truck drivers were among the few workers allowed
to remain on the job. And Michigan furloughed about 37,400 state
employees over six intermittent Mondays and Fridays during the summer.

But in situations where a team is furloughed for two weeks, “that’s
a little more difficult to do. What do I do, take their Blackberries?”
Dufresne asked. “If nothing else, employers have to be able to show
good faith effort in compliance,” she said, by doing such things as:

• Understanding what the guidelines for the furlough are, “because
they’re very clear in the FLSA.”

• Figuring out, within your organizational structure, how to build
protections for the company while educating employees as to why they
cannot continue to work while on furlough.

• Communicating to employees – in a friendly, empathetic way – why
they cannot work off the clock during their furlough.

“People weren’t even planning; it was just a knee-jerk reaction” to
being smacked by “this crazy economy,” Dufresne said. However, “this is
not something you do overnight. This is something where you say ‘what
are the legal ramifications and rules and what are the ramifications on
the employees?’”

HR professionals must make sure management understands there are
rules governing furloughs and look at all aspects. That includes the
legalities, the employee perspective, and appropriate performance
adjustment.

The purpose of the Toledo Area Human Resource Association (TAHRA) is
to promote the enlightened practice of the Human Resources discipline,
to enhance the professional and personal development of individuals
engaged in the practice of human resources, and to provide occasions
for the interchange of ideas and information among those who are
members of the organization.